Short sales usually better than foreclosures

Q. How do I know that I'll be approved for a short sale and is it that much better than a foreclosure?

Mike in Brea

A. Thank you for writing in. The first part of your question is something that I still get asked, all the time. I may have answered something like this in the past, but it seems like a good time for a refresher. To qualify for a short sell, you have to document that you genuinely have some form of hardship. You'll find that banks are pretty lenient when you choose this route and we tell our clients to be truthful in making their disclosures.

The most common types of hardships are "realized" ones. Realized hardships are when an actual hardship has occurred already. Common realized hardships can include being laid off, a finalized divorce, inability to make the mortgage payments because tenants have moved out and health-related issues. I've seen a bank approve a short sale where the house was located by train tracks, with lots of power lines overhead, because the wife and daughter had experienced a noticeable deterioration in their health in the four years since their move. We told the bank that this was their concern and the reason they felt they were in a hardship situation; the bank then accepted this as a valid hardship.

The other type of hardships are "potential" hardships. These are situations that may occur, will probably occur or are imminently occurring, but haven't happened yet. We've had short sales approved where someone's company was experiencing layoffs. A particular homeowner didn't want to risk not having money to feed his family and made the decision to ask the bank for a short sale. The bank was okay with it, but the bank was given full disclosure that no layoff had happened and that there was no level of certainty that it would. There also have been cases we've gotten approved where someone with income that went from close to $1 million a year went down to just less than half that and wanted to get rid of a rental property that was costing the most in losses per month. This person had no idea at the time what the yearly income would end up being. The client could definitely afford the house at the time and let the bank know that. We also kept the bank up to date about the client's yearly income as the lender processed the file and it still got approved.

Most people should be encouraged that the banks are generally agreeable to approving a short sale. But there's more to the process than just the explanation of the hardship. That's where a professional service comes in and finalizes the approach. I believe that for tax, credit, and future renting possibilities, a short sale is just about always better than a foreclosure.

Chris Diaz is the founder of Charis Financial, Inc. He has more than 15 years experience in helping homeowners with mortgages and has closed hundreds of short sales over the last four years. His website is www.charisfinancialinc.com. Send your questions to moneymatters@ocregister.com; reference "short-sales" in the subject line.

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